Experts said concerns over the Union Budget, too, had weighed on the market performance.
The returns in the domestic market in February are the worst among all the major global markets.
Sustained selling by overseas investors on global growth concerns has dragged the Indian stock market down by nearly eight per cent in dollar terms this month.
In local currency terms, the Indian market is down nearly seven per cent in February, extending this year’s decline to 11.4 per cent.
Among the major markets, Switzerland is the second worst performer with negative returns of 2.3 per cent.
India and Switzerland are among the top 10 equity markets in the world in terms of market capitalisation.
Even though most global markets have dropped this year, India has emerged as a surprise underperformer, given its one-of-the-fastest-growing-economies tag.
Sakthi Siva, equity strategist at Credit Suisse, said India’s underperformance was likely to continue due to its valuation premium and also its slew of earnings downgrades.
“India’s premium to the region has dropped from a high of 55 per cent in September to 46 per cent currently. We note that historically India has always underperformed once its premium reaches 50 per cent,” said Siva in a note last week.
Outflows from overseas investors at $2.54 billion this year have been among the highest among emerging markets.
“Most investors have an overweight position on India. As the market is over-owned, the selling pressure is more. Last year local inflows were very strong, that too has weakened now. The reality is sinking in that the growth outlook is tough,” said Gautam Chhaochharia, head of research, UBS India.
Experts said concerns over the Union Budget, too, had weighed on the market performance.
“Investors have realised there are challenges around the Budget. It is not a simple scenario where the government can expand the fiscal deficit and stimulate growth. This is also clouding the outlook,” said Chhaochharia.
Worryingly, the fall in the market over the past year has hurt India’s record of being a market with superior risk-adjusted returns.
“MSCI India has been the third most volatile market since the global financial crisis. Only Brazil and Russia have seen higher volatility than India. Relatively higher returns helped India’s positioning on risk-adjusted return parameters. The trend has twisted a bit over the last year,” JPMorgan Analysts led by Adrian Mowat said in a note earlier this week.